Zeev's Turnips Patch-No Politics (ZEEV)

[hightecheast]

Some thoughts on long-term economic imbalances, Zeev.

Remember "Nixon's the ONE" ... now it's "Alan's ALL WRONG"

If Greenspan had tightened margin requirements or combined that with a small increase in short-term interest rates after his December, 1996 "irrational exuberance" comments, we might have avoided the huge equity bubble, and the aftermath.

Unfortunately, AG followed that misjudgment (starting with raising liquidity for the feared, but never realized 2000 crisis) with a move to artificially low interest rates (starting in January, 2001), and huge liquidity creation.

The main long term impact of those policies is to push off into the future the realization of negative economic consequences. It will not avoid them.

So now there is nothing AG can do, but hope and talk confidently. We have low interest rates, and all the good and bad (mostly bad) that comes with that. No pent-up demand in housing or autos, accelerating low cost imports from Asia, a painfully slow increase in employment and a quickly accelerating federal deficit (not all Greenspan's fault). All while we are more and more putting ourselves at the mercy of foreign owners of our debt.

With short-term rates as low as they are, do you think AG would hesitate to start raising rates right now if he really believed our economy was moving forward in a sustainable advance. Think about it... record consumer debt, record corporate debt, record federal debt ... and all with record low interest rates. It is purely illogical.

From here on, we will be able to follow it all through changes in three variables ... the value of the dollar, the level of long term interest rates, and the price of gold.

So far, I have not found anyone whose opinion or credentials I respect who disagrees. Hopefully, my coming presentations to the business administration and economics faculty here (at Penn State in the early fall) will expose some alternative ideas and results for the future or possibly some poor analysis on my part.

ALL COMMENTS WELCOME

Ken Wilson